Not one departing CA company leaves because of their new state’s enticement subsidies

Progressives are quite defensive about businesses fleeing California, and understandably so. One lame excuse that they pull out of their “We’re all right, Jack” playbook is to blame the departures on the taxpayer subsidies provided by states courting these California businesses.

Poppycock. A number of states DO offer such subsidies, but that’s not why California businesses flee the Golden State. Not ONE company moves out of California because of these subsidies. But such windfalls can indeed be a factor in the decision concerning WHICH state to move to.

The decision to move a California business is really a two step process:

1. Should we leave California?

2. Which state (or occasionally which COUNTRY) should we move to?

Truth is, almost no one in a California business is enthusiastic about leaving the state — from the company CEO down to the lowest paid employee. California is blessed with the nation’s best climate, terrific beaches and wonderful mountain recreation options. The lack of humidity and bugs is a huge reason to stay in California. Just not huge enough, when it comes to business.

A company is in the business of seeking to maximize profits. California is arguably the most anti-profit state in America. The business owners and their boards of directors are obligated to seek the best opportunities for their companies’ futures.

Moving a company out of state is terribly disruptive. Many valued employees will be lost — deciding not to make the move out of California. It’s likely that some customers will be lost. During the move, sales will plummet. Actual moving costs are small compared to the preparation of a new location.

In spite of all those reasons not to move, too many businesses DO flee our state. 100% of the credit for this decision has to go to California state and local government policies — including (but NOT limited to) taxes and fees. Other states don’t attract our CA businesses — California governments drive them away. As I’m fond of saying: “California is the engine of progress — for the OTHER 49 states.”

Let me give you an example I’m personally familiar with. Years ago a friend of mine owned a small electronics production business in California. He moved the business to Nevada. Some employees moved with him, others chose to stay. His business sales remained rather stagnant.

But on the same sales volume, he found he was making as much profit in a WEEK in Nevada as he used to make in a MONTH in California. Stated differently, he quadrupled his profits without increasing sales. That’s an impressive incentive for a California business to relocate elsewhere. But don’t expect THAT dramatic an improvement!

As usual, I digress. While I oppose government giveaways to business, I can see the case for reducing the taxes owed by a newly arriving company for the first few years after the move. That’s a small price to pay for a business that brings jobs and purchasing power to one’s area.

Let me make a distinction. RETAIL businesses are quite different than PRODUCTION businesses. Most retail businesses won’t move, because they have an existing client base. They MIGHT move their HQ (and do — think Carl’s Jr. who recently decided to move their CA HQ to Nashville, Tennessee), but seldom will a retail company close a store in CA and open it somewhere else.

Moreover, there’s no reason to provide taxpayer support for such retail stores, as they compete with existing retailers. Taxpayer incentives should be limited to manufacturing and other production-oriented activities. Better yet, stay out of the subsidy business altogether.

Texas is roundly criticized by progressives for their business subsidy policies. But Texas is not “stealing” California businesses. Those businesses had already decided to leave California. If Texas is “stealing” from anyone (aside from their own taxpayers), they are stealing business from other states also seeking to entice California companies to come their way.

One other point: California progressives rail against such business subsides by other states, but praise to the skies California’s new movie production subsidy — which runs into the hundreds of millions of dollars. It’s a subsidy passed by the Democrat-controlled CA state legislature and supported by Governor Brown. But then, consistency has never been the hallmark of the liberal mind.

This entry was posted
on Wednesday, August 9th, 2017 at 4:03 pm and is filed under Blog Posts.